Population aging and the determinants of healthcare expenditures: the case of hospital, medical and pharmaceutical care in British Columbia, 1996 to 2006

Morgan, S and Cunningham, C (2011) Population aging and the determinants of healthcare expenditures: the case of hospital, medical and pharmaceutical care in British Columbia, 1996 to 2006. Healthcare Policy, 7 (1). pp. 68-79. ISSN 1715-6572

Abstract

There is a gap between rhetoric and reality concerning healthcare expenditures and population aging: although decades-old research suggests otherwise, there is widespread belief that the sustainability of the healthcare system is under serious threat owing to population aging. To shed new empirical light on this old debate, we used population-based administrative data to quantify recent trends and determinants of expenditure on hospital, medical and pharmaceutical care in British Columbia. We modelled changes in inflation-adjusted expenditure per capita between 1996 and 2006 as a function of two demographic factors (population aging and changes in age-specific mortality rates) and three non-demographic factors (age-specific rates of use of care, quantities of care per user and inflation-adjusted costs per unit of care). We found that population aging contributed less than 1% per year to spending on medical, hospital and pharmaceutical care. Moreover, changes in age-specific mortality rates actually reduced hospital expenditure by —0.3% per year. Based on forecasts through 2036, we found that the future effects of population aging on healthcare spending will continue to be small. We therefore conclude that population aging has exerted, and will continue to exert, only modest pressures on medical, hospital and pharmaceutical costs in Canada. As indicated by the specific non-demographic cost drivers computed in our study, the critical determinants of expenditure on healthcare stem from non-demographic factors over which practitioners, policy makers and patients have discretion.